The central bank governor said on Thursday that the Turkish banking sector is “very strong”, after meeting officials and managers of public and private banks in Turkey.
Governor Shihab Kavcioglu told a group of journalists after the meeting in Istanbul, the commercial capital of Turkey, that the Turkish banking sector is also one of the most successful in the world.
Besides a number of bank CEOs, Kavcioglu met with Chairman of the Banking Regulation and Supervision Authority (BDDK) Mehmet Ali Akpen and President of the Turkish Banks Association (TBB) Alpaslan Çakkar.
He said they discussed a range of issues, including inflation, monetary policy and global developments.
On Wednesday, Turkish President Recep Tayyip Erdogan spoke with Kavcioglu in a closed-door meeting.
Kavcioglu’s comments came amid fluctuations in foreign exchange rates in the wake of interest rate cuts by the Central Bank.
In a statement on Tuesday, the central bank denounced “unhealthy” and “unrealistic” price formations in foreign exchange markets, saying they are completely disconnected from economic fundamentals.
What is Erdogan’s plan about interest and the Turkish lira?
Turkish President Recep Tayyip Erdogan has renewed his categorical rejection of raising interest rates in his country, stressing that he will continue to combat it, describing what his country is witnessing these days of lowering interest rates, accompanied by a sharp decline in the value of the local operation, as a “war of economic independence.”
In his speech during a press conference after a government meeting, Erdogan said that the price increase resulting from the exchange rate appreciation does not directly affect investment, production and employment, and stressed that he prefers a competitive exchange rate because it brings an increase in investment and employment.
Erdogan also blamed the Turkish lira’s weakness on what he said were maneuvers over the exchange rate and interest rates.
“We will emerge victorious from the war of economic independence, as we did in the rest of the fields,” he said, adding that Turkey has sufficient experience in managing financial crises, and that Ankara is determined to seize the opportunities that have been made available at this critical stage the world is going through.
“We are determined to do what is right and beneficial for our country by focusing on investment, production, employment, and our export-oriented economic policy,” he added.
“We will not allow the opportunists to raise the prices of goods excessively under the pretext of a high exchange rate, and we will continue the struggle against them,” he added.
The Turkish president’s view is that raising the interest rate is one of the reasons for the high rate of inflation in the country, and the interest rate is an obstacle to investors, because the high interest rate increases production costs.
There is another argument that the Turkish president provides, which is comparing the interest rate in his country with the rest of the G20 countries, especially those countries that belong to the European Union and America, in those countries the interest drops to between zero and 1%, and in his country it rises to 19%.
In the face of these developments, a question arises about the most prominent features of Erdogan’s plan to cut interest and control the exchange rate of the Turkish lira.
President Erdogan proceeds from the fact that his country succeeded in its economic experience through the real economy, and its access to the 20 largest economies in the world was the result of the improvement in its gross domestic product, through the production of goods and services, and therefore this advantage must be preserved.
President Erdogan believes that reaching the interest rate of 24% or 19% is a hindrance to production and investment, and it pushes individuals and institutions to put their money in banks, and close companies and institutions, content with the interests they receive on their money.
Undoubtedly, this behavior turns the Turkish economy into a rentier economy, and loses its most important components as a productive economy.
President Erdogan’s view is consistent with the economic theory that raising the interest rate leads to an increase in inflation from the supply side, because it leads to an increase in the cost of production.
However, the high inflation rates have other reasons, including the devaluation of the currency, so the economic policy maker in Turkey is on a difficult task, so he must address the matter, in the interests of investors, savers, and consumers, according to a report by Al-Jazeera Net.
Opponents of President Erdogan are of two types; The first is those who disagree with him politically, and these are not the place here to address their point of view, as they will disagree with him along the way. The second type is the economic violators, so they proceed from their adoption of solutions to matters in light of reading monetary policies from a capitalist perspective, which is that if the value of the currency decreases, you have to raise the interest rate to absorb excess liquidity in the market and maintain inflation rates.
Therefore, we found those in charge of the Turkish Central Bank’s order, raising the interest rate in September 2018 to 24%, which is an unprecedented rate, and the matter was repeated in March 2021, when the interest rate was raised to 19%, but the problems of the Turkish economy remained on both levels. Fiscal and monetary are the same, which led to unemployment remaining at a high rate of 12.7%, as well as inflation reaching 19.7%.
The real problem here is the lack of coordination between the components of economic policy. The solution is not only about monetary policy measures, it is necessary to look at its repercussions on investment, trade, employment, and state finances.
The exchange rate of the Turkish lira was 11.52 against the dollar on Tuesday morning.
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